Karnataka 2nd PUC Economics Notes Chapter 8 National Income Accounting
→ Gross Domestic Product (GDP): GDP is the aggregate of the final goods and services produced in the domestic territory of a country during an accounting year.
→ Net Domestic Product (NDP): NDP refers to the market value of all final goods and services turned out in an economy during a given period of time after making allowance for depreciation charges. It is obtained by subtracting depreciation from GDP.
→ Gross National Product (GNP): It is the most important concept in National Income accounting. It is a National concept. GNP is defined as the total market value of all final goods and services produced in a country during a year.
→ Net National Product (NNP): Net national product is the market value of the net output of final goods and services produced by the country during the relevant income period.
NNP = GNP – Depreciation.
→ Personal Income (PI): The concept of personal income refers to the sum of all the incomes actually received by the individual and households in a country during one year. It is the amount available to. them for spending, paying taxes and saving purposes. P I is less than NI because several deductions are made out of it.
→ Personal income = National income – undistributed profit – social security contribution + transfer payment.
The concept of PI helps us to know the potential purchasing power of people.
→ Disposable personal Income: The entire PI accounting to individual or house hold in not available for consumption purpose. A part of PI has to be paid to the Government by way of personal direct tax. Hence, that part of the personal direct taxes is called as disposable personal income.
→ Nominal and Real National Income: When the national income is expressed in the prices prevailing in the year in which it is calculate it is called nominal national income. For example; if the national income of the year 2014-15 is calculated as per the prices of 2014-15, it becomes nominal national income.
→ Per Capita Income: Per capita income refers to the income of individual person. It is the average income of the people of a country. The per capita income is calculated by dividing the national income by population.
→ Product method or output method: Under this method, a census of all goods and services are conducted to get the correct picture of total national production.
While calculating total volume of goods and service, the following four items are to be included.
a. All kinds of consumption goods and services.
b. Gross domestic investment, which includes inventories, capital formation, construction of houses etc.
c. Production in the public sector.
d. Export minus imports.
Income method:
Y = (r + w + i + p) + (X – M) + (R – P), where
- r – rent,
- w – wages,
- I – interest,
- p – profit,
- X – exports,
- M – imports,
- R – receipts,
- P – payments.
→ Expenditure method: Incomes earned by factor inputs are spent on buying different goods and services. If we add- the total expenditure incurred by all people in a years’ time, then we get total income of the people. Income determines the expenditures. All kinds of expenditures are to be taken into account while calculating the national income of a country. They are
- Personal consumption expenditures of all people on all kinds of goods and services.
- Gross domestic investment or investment expenditures made by all businessmen in a year.
- Gross Governments’ expenditure on all kinds of goods and services.
- Net foreign investment, exports – imports.
This method may be represented with the help of the following equation.
Y = (C + I + G) + (X – M) + (R – P), where,
- C – Consumption,
- I – Investment,
- G – Government’s Investment,
- X – exports,
- M – Imports,
- R – Receipts, and
- P – Payments.